… is from page 4 of Linda R. Cohen’s and Roger G. Noll’s 1991 paper “New Technology and National Economic Policy,” which is Chapter 1 of The Technology Pork Barrel (L. Cohen & R. Noll, eds., 1991):
In the private sector the problems of relating uncertain current research to uncertain future market conditions are demanding and risky enough, but they are even harder for public officials, who usually have less access to information about markets than their counterparts in the private firms. Moreover, the public decisionmaker must consider political forces that would be of little or no concern to a private organization.
DBx: This problem of deficient information continues to be ignored by advocates of industrial policy. Industrial-policy advocates simply assume the knowledge problem away or, what is the same thing, assume that it will somehow be solved. Just how officials charged with conducting industrial policy will acquire the detailed knowledge necessary for their schemes to succeed is never explained.
Note that it will not do for industrial-policy proponents to say “Oh, government officials will acquire, process, and act on the same knowledge that is used by private entrepreneurs, investors, and managers.” Precisely because industrial policy is designed to bring about a pattern of resource allocation that differs from the pattern that would arise on free markets, industrial-policy officials cannot be guided by the same source of knowledge as that which guides private decision-makers.
Private decision-makers are guided largely by relative prices set on markets – prices for outputs relative to each other, and prices for inputs relative both to each other and to outputs. Because industrial policy rejects the usefulness of these prices – because at the very core of support for industrial policy is the belief that the information conveyed by market prices is defective – industrial policy overrides market prices. And by overriding market prices, industrial policy destroys the single greatest source of information that private-sector decision-makers rely upon.